3 Google Nexus One Questions That Won't Go Away

Google dove into the mobile device market this week with a splash similar to a Baby Grand piano falling into a swimming pool from 10 stories up.

With the unveiling of HTC's Nexus One smartphone, which has Android under the hood, Google is now going to be selling mobile devices directly to customers. It's a bold move, but one that will put Google in competition with partners and raise the ante in the already competitive mobile market. Not to mention the potential for unintended consequences.

Here we look at three questions -- and there are clearly many more -- that the Google Nexus One is generating right now amongst the wireless industry cognoscenti, and which Google is going to have to answer at some point in the not-too-distant future.

1. Why Is Google Competing With Its Partners?

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When Google first unveiled Android, its stated plan was to develop the operating system while phone makers concentrated on producing Android phones. That plan worked well at first, and many handset makers stepped up with innovative Android powered smartphones. However, when Verizon started selling Motorola's Droid smartphone in November, cracks began appearing in the veneer of harmony that had been part of the initial blueprint.

Some industry watchers believe that Google may be getting caught up in the political side of the wireless operating systems business. "How did Verizon suddenly get the rights to sell an Android 2.0 phone when all of T-Mobile's phones were Android 1.6 and below?" says Allen Nogee, an analyst with In-Stat, Scottsdale, Ariz. "It looked like Verizon was getting some favoritism."

With the arrival of Nexus, Google is now competing with Verizon and every other phone manufacturer that has invested in supporting Android. Take Motorola, for example: Are they a Google partner or a Google competitor? According to Nogee, this ambiguity could cause some manufacturers to reconsider their level of commitment to Android.

"It gets very fuzzy. Because Google has entered the phone market, and they have the power to give themselves the most advanced version of Android, other phone makers may feel they are at a disadvantage, and therefore may support Android a bit less," says Nogee.

Steve Beauregard, president of Santa Monica, Calif.-based mobility solution provider Regard Solutions, is impressed with the brashness of Google's entry to the mobile business but agrees that it's likely to ruffle the feathers of industry incumbents.

"This move sends mixed messages to Motorola, HTC and other third party manufacturers that have to wonder how Google will keep a level playing field in a hotly competitive market," Beauregard says.

2. Is Nexus One Really A Game Changer?

Google is selling an unlocked version of Nexus One for $529 and a version with a T-Mobile contract for $179. Naturally, it's the unlocked option that's getting the most attention, as some industry watchers see it as Google's attempt to chip away at exclusive agreements that have been U.S. carriers' bread and butter.

But will the addressable market be large enough to justify the expense of developing Nexus One? Dan Croft, president and CEO of Mission Critical Wireless, a solution provider in Lincolnshire, Ill., doesn't see anything ground-breaking about the economics Google has described for Nexus One.

"How does offering an unlocked version of the Nexus One for $529 and a Nexus One with a two-year T-Mobile activation for $179 qualify as 'game changing'? It might the greatest device ever, but it sure sounds like the traditional carrier subsidy model to me," says Croft.

Next: Google's Demand Generation Challenge

David Bean, president of eAccess Solutions, Palatine, Ill., believes Google's target market is going to be consumers that would otherwise be considering an iPhone or Windows Mobile device. If Google succeeds in generating demand for the unlocked Nexus One, the search giant could conceivably create an alternative sales channel to the carrier-subsidized option, he says.

However, Nokia has already tried to do this in the in the U.S. with limited success, which suggests Google will certainly have its work cut out for it. Carriers have been reluctant to offer Nokia devices because even when subsidized, they don't hit the magic $199-or-under price point, notes Bean. In response, Nokia tried stocking unlocked handsets with Ingram Micro and other distributors and tried to get the channel to sell them, but this hasn't met with much success.

"If Google is to be successful at selling their unlocked hardware-only handsets, they're going to have to create end user demand," says Bean. "You can imagine what the demand would be for unlocked iPhones if they were offered in retail -- just look at what they go for on eBay."

3. Can Google Generate Nexus One Demand On Its Own?

By releasing Nexus One as an unlocked GSM device, Google is foregoing much of the sales and marketing muscle that carriers can bring to bear when exclusive agreements are in place. It's a brave move on Google's part, but one that raises inevitable questions about whether Google, like other wireless industry mavericks, can succeed where others have failed.

"As a mobile software vendor, I have sat alongside myriad hardware manufacturers vying for the attention of carrier sales teams," Beauregard says. "The questions asked are always related to differentiation. Having a gadget that the other carrier doesn't gives them a reason to call clients and sell."

Underestimating the convincing power of carrier direct sales teams is one mistake that Sierra Wireless made when its Voq smartphone hit the market in 2004, Beauregard says. Sierra Wireless intended for the Voq to be sold unlocked by various electronics, handheld and computer vendors, and not through U.S. carriers, but despite its technical merits the device was a flop in the marketplace.

Google is also selling Nexus One through T-Mobile and Verizon in the U.S., so it won't be completely on its own in generating demand for the device. Still, while Google deserves credit for its bold move into mobile device sales, hardware is a dramatically different business model and the learning curve could be steep.

"The tendency to throw huge amounts of money and resources to solve problems instead of hiring the right people to manage that business is a temptation Google will have to fight in order to be successful," says Beauregard.